Venezuela’s economic collapse is laid bare when you look at how little energy the country is consuming

(The Conversation, 6 Mar 2019) The country with the most oil reserves on the planet is facing a total economic crash, with wildly conflicting inflation estimates – as high as 10,000,000% if the IMF’s projections for this year are correct.

There has been much discussion about the collapse in Venezuela’s oil exports, intensified by US sanctions against the state oil company PDVSA, which substantially prevents any oil trading between the two countries and takes away a steady income stream for the country. To understand the scale of the crisis, however, it is vital to look at what has been happening to energy consumption inside the country itself.

Oil consumption in Venezuela fell 37% in five years up to 2017, a reminder that the country was struggling under the Maduro administration long before the latest sanctions, which came after opposition leader Juan Guaidó announced himself the country’s rightful president in January. Unfortunately, the oil decline is not an environmental achievement but a worrying symptom of Venezuela’s economic conditions – GDP is expected to have fallen 50% between 2015 and 2019.

In a country where economic data is scarce, different oil products can be used as proxies for different kinds of economic activity. Venezuela’s oil and fuel oil export numbers give insights into the country’s incoming cash flow from abroad, for instance, while diesel consumption is a partial indicator for transport, industry and the power sector. Gasoline is a proxy for transport activity as well.

Diesel consumption declined by 11% on average each year in 2013-17, and gasoline shows a similar pattern with an average annual decline of 7% or by 27% over the same five-year period. Together, the two fuels account for approximately 70% of total oil demand in the country. From the graphic below, you can see that the collapse in oil consumption and GDP are staggeringly similar.

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The Conversation, 6 Mar 2019: Venezuela’s economic collapse is laid bare when you look at how little energy the country is consuming